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Boris Is Bad Enough

April 23, 2016 8:58 amApril 23, 2016 8:58 am

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Thank you, Boris Johnson. You’ve finally given me the moral courage to weigh in on a subject I’ve been avoiding: Brexit, Britain’s possible exit from the European Union. It’s not as easy
a case as I’d like – but Johnson’s intervention makes it clear: Britain should stay in, lest it empower people like him.

Let me start with the economics. There are a number of estimates of the economic impact of Brexit out there, from HM Treasury and independent analysts,
but I like to have a quick-and-dirty calculation I understand; it’s not out of line with other, more detailed results.

Here it goes: before it joined the EU, Britain did only about a third of its trade with Europe. Now it’s about half, and it’s unlikely that much of that represents trade diversion. So unless Britain can
negotiate something that looks like Norway’s deal – which would basically mean accepting EU policies in which it would no longer have a voice – we might expect Brexit to reduce the share of
trade in British GDP from about 30 percent to about 25 percent.

What’s that worth? I’ve previously used the elegant Eaton-Kortum trade analysis as a benchmark for assessing
globalization; it tells us that real income, for given technology, is (1-trade share)^(-1/theta), where theta is a parameter reflecting how much comparative advantage there is in the world (don’t ask). Eaton-Kortum
suggest theta=4 fits best. In that case, Brexit would reduce British real income by 1.7 percent. Call it 2 percent, with the understanding that there are big error margins around all of this.

Should we, as some argue, multiply this by two or more to reflect dynamic gains? In general, I’m not fond of this practice – it smacks way too much of 101 boosterism,
deriving a policy argument from basic economic models then invoking factors not in the models to make the argument seem much stronger than it is. Why tout the dynamic effects of trade as opposed to lots of other
things?

But 2 percent is a lot! It’s very, very hard to come up with policies that will make a country 2 percent richer in perpetuity. You’d have to have very good reasons to leave the EU to be willing to make
that big a sacrifice.

What about income distribution, which is a big issue in many trade agreements? In this case, it’s pretty much irrelevant: the EU is, on average, comparable in wages and per capita income to the UK, with much
of the trade intraindustry specialization that has little distributional effect. So Trumpsandersism shouldn’t matter here.

So what’s this all about? In a word, governance. The case for Brexit is, basically, that EU membership ties Britain to a very badly run institution. And that case is, unfortunately, reasonably strong. Eurocrats
have a lot to answer for: the huge mistake of the euro, the reckless and feckless promotion of austerity, the hapless response to the refugee crisis and in general the failure to take seriously the strains of internal
migration. Oh, and Europe has been largely useless in dealing with the destruction of democracy in Hungary.

But to point to the EU’s failings as a reason to leave is, as George Stigler used to say, giving the prize in a singing contest to the second contestant because you’ve heard the first. If Britain does
leave the EU, and escapes the grip of the Eurocrats, who will it be empowering instead?

You sometimes hear people saying that the attitudes and character of the pro-Brexit forces are not a valid argument for staying in. But that’s wrong: asking who would call the shots afterwards, who would be strengthened,
is extremely relevant.

And that’s where Boris Johnson’s tirade against President Obama is so wonderfully clarifying. It tells us who the
anti-EU wing of the Conservatives really are; it tells us not just that they are pretty close to UKIP, but that intellectually and emotionally they live in the same fever swamps as the American right. And they would,
all too probably, take on a strong, even dominant role in British politics post-Brexit.

So Britain, don’t do this. You would pay a fairly large economic price, and in return you would get governance so bad that it would make the EU look good.